-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q6MeycqpMISXUypitqIcKwwyt1BCmmm5yTUOCvDdsmrsD8tH7H5Q/HBL0tuOf6dh jvc0ibt7Fqyn3SNfHO1nvA== 0000950132-02-000257.txt : 20021114 0000950132-02-000257.hdr.sgml : 20021114 20021114094319 ACCESSION NUMBER: 0000950132-02-000257 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDDLEFIELD BANC CORP CENTRAL INDEX KEY: 0000836147 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 341585111 STATE OF INCORPORATION: OH FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-32561 FILM NUMBER: 02822084 BUSINESS ADDRESS: STREET 1: 15985 E HIGH ST STREET 2: P O BOX 35 CITY: MIDDLEFILED STATE: OH ZIP: 44062-9263 BUSINESS PHONE: 4406321666 MAIL ADDRESS: STREET 1: 15985 EAST HIGH STREET STREET 2: P O BOX 35 CITY: MIDDLEFIELD STATE: OH ZIP: 44062-9263 10-Q 1 d10q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20552 FORM 10 - Q [X] QUARTERLY REPORT UNDER SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For the transition period from to Commission File Number 33-23094 ------------------------------- Middlefield Banc Corp. (Exact name of registrant as specified in its charter) Ohio 34 - 1585111 (State or other jurisdiction of incorporation (IRS Employer Identification No.) or organization) 15985 East High Street, Middlefield, Ohio 44062-9263 (Address of principal executive offices) (440) 632-1666 (Registrant's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: Class: Common Stock, without par value Outstanding at November 11, 2002: 1,156,579 MIDDLEFIELD BANC CORP. INDEX
Page Number ---------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet (Unaudited) as of 3 September 30, 2002 and December 31, 2001 Consolidated Statement of Income (Unaudited) for the Nine and Three Months ended September 30, 2002 and 2001 4 Consolidated Statement of Changes in Stockholders' Equity (Unaudited) 5 Consolidated Statement of Cash Flows (Unaudited) for the Nine Months ended September 30, 2002 and 2001 6 Notes to Unaudited Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 PART II - OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities 21 Item 3. Default Upon Senior Securities 21 Item 4. Submissions of Matters to a Vote of Security Holders 21 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8 - K 21 SIGNATURES
MIDDLEFIELD BANC CORP. CONSOLIDATED BALANCE SHEET (Unaudited)
September 30, December 31, 2002 2001 -------------- ------------- ASSETS Cash and due from banks $ 4,846,689 $ 3,443,435 Federal funds sold 4,600,000 2,450,000 -------------- -------------- Cash and cash equivalents 9,446,689 5,893,435 Interest-bearing deposits in other institutions 571,007 1,240,207 Investment securities available for sale 31,961,166 21,179,786 Investment securities held to maturity (estimated market value of $7,501,461 and $10,471,978)) 7,288,573 10,229,068 Loans 169,158,698 152,828,355 Less allowance for loan losses 2,226,813 2,062,252 -------------- -------------- Net loans 166,931,885 150,766,103 Premises and equipment 6,330,353 6,244,797 Accrued interest and other assets 2,313,795 2,304,568 -------------- -------------- TOTAL ASSETS $ 224,843,468 $ 197,857,964 ============== ============== LIABILITIES Deposits: Noninterest-bearing demand $ 25,583,496 $ 24,952,407 Interest-bearing demand 7,505,711 6,523,152 Money market 9,969,689 7,940,807 Savings 47,372,399 41,518,906 Time 95,651,563 86,447,456 -------------- -------------- Total deposits 186,082,858 167,382,728 Short-term borrowings 2,435,515 660,678 Other borrowings 14,325,124 9,301,334 Accrued interest and other liabilities 771,896 726,417 -------------- -------------- TOTAL LIABILITIES 203,615,393 178,071,157 -------------- -------------- STOCKHOLDERS' EQUITY Common stock, no par value; 5,000,000 shares authorized, 1,206,921 and 1,203,633 shares issued 7,820,001 6,287,011 Retained earnings 14,541,705 14,842,519 Accumulated other comprehensive income 465,684 133,717 Treasury stock, at cost (50,342 and 45,722 shares) (1,599,315) (1,476,440) -------------- -------------- TOTAL STOCKHOLDERS' EQUITY 21,228,075 19,786,807 -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 224,843,468 $ 197,857,964 ============== ==============
See accompanying notes to unaudited consolidated financial statements. MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, 2002 2001 2002 2001 ----------------- ----------------- ----------------- ----------------- INTEREST INCOME Interest and fees on loans $ 9,204,917 $ 8,818,686 $ 3,126,762 $ 3,047,283 Interest-bearing deposits in other institutions 42,562 47,801 12,499 18,612 Federal funds sold 48,796 114,668 23,736 17,786 Investment securities: Taxable interest 901,560 939,442 319,991 314,326 Tax-exempt interest 313,239 349,574 102,623 110,104 ----------------- ----------------- ----------------- ----------------- Total interest income 10,511,074 10,270,171 3,585,611 3,508,111 ------------------------------------ ------------------------------------ INTEREST EXPENSE Deposits 4,155,138 4,694,735 1,410,512 1,595,269 Short-term borrowings 9,323 13,000 5,777 3,897 Other borrowings 474,594 403,752 174,438 131,544 ----------------- ----------------- ----------------- ----------------- Total interest expense 4,639,055 5,111,487 1,590,727 1,730,710 ----------------- ----------------- ----------------- ----------------- NET INTEREST INCOME 5,872,019 5,158,684 1,994,884 1,777,401 Provision for loan losses 225,000 125,000 75,000 45,000 ----------------- ----------------- ----------------- ----------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,647,019 5,033,684 1,919,884 1,732,401 ----------------- ----------------- ----------------- ----------------- NONINTEREST INCOME Service charges on deposit accounts 712,391 688,038 245,343 232,378 Investment securities gains, net - 97,807 - 97,807 Other income 117,900 106,387 40,156 35,607 ----------------- ----------------- ----------------- ----------------- Total noninterest income 830,291 892,232 285,499 365,792 ----------------- ----------------- ----------------- ----------------- NONINTEREST EXPENSE Salaries and employee benefits 1,877,547 1,693,834 625,624 543,803 Occupancy expense 260,498 216,996 85,296 68,784 Equipment expense 256,487 221,199 92,112 79,397 Data processing costs 256,359 211,367 87,228 72,314 Ohio state franchise tax 202,550 180,050 67,500 60,000 Other expense 1,019,679 954,065 310,266 325,679 ----------------- ----------------- ----------------- ----------------- Total noninterest expense 3,873,120 3,477,511 1,268,026 1,149,977 ----------------- ----------------- ----------------- ----------------- Income before income taxes 2,604,190 2,448,405 937,357 948,216 Income taxes 844,000 759,826 298,000 288,326 ----------------- ----------------- ----------------- ----------------- NET INCOME $ 1,760,190 $ 1,688,579 $ 639,357 $ 659,890 ================= ================= ================= ================= EARNINGS PER SHARE Basic $ 1.52 1.46 $ 0.55 0.57 Diluted 1.52 1.46 0.55 0.57
See accompanying notes to unaudited consolidated financial statements. MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Accumulated Other Total Common Retained Comprehensive Treasury Stockholders' Comprehensive Stock Earnings Income Stock Equity Income ----------- ------------ --------------- ------------ --------------- --------------- Balance, December 31, 2001 $ 6,287,011 $ 14,842,519 $ 133,717 $ (1,476,440) $ 19,786,807 Net income 1,760,190 1,760,190 $ 1,760,190 Other comprehensive income: Unrealized gain on available for sale securities net of taxes of $171,013 331,967 331,967 331,967 --------------- Comprehensive income $ 2,092,157 =============== Exercise of stock options 18,960 18,960 Purchase of treasury stock (140,100) (140,100) Sale of treasury stock 795 17,225 18,020 Stock dividend 1,429,662 (1,434,607) (4,945) Dividend reinvestment plan 83,573 (83,573) - Cash dividends ($.54 per share) (542,824) (542,824) ----------- ------------ --------------- ------------ --------------- Balance, September 30, 2002 $ 7,820,001 $ 14,541,705 $ 465,684 $ (1,599,315) $ 21,228,075 =========== ============ =============== ============ ===============
See accompanying notes to unaudited consolidated financial statements. MIDDLEFIELD BANC CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 2002 2001 --------------- ----------------- OPERATING ACTIVITIES Net income $ 1,760,190 $ 1,688,579 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 225,000 125,000 Depreciation and amortization 255,338 222,843 Amortization of premium and discount on investment securities 95,846 45,704 Amortization of net deferred loan costs (fees) (169,445) (13,193) Investment security gains - (97,807) Increase in accrued interest receivable (54,453) (44,762) Increase (decrease) in accrued interest payable (78,092) 148,030 Other, net 172,784 (176,503) --------------- ---------------- Net cash provided by operating activities 2,207,168 1,897,891 --------------- ---------------- INVESTING ACTIVITIES Decrease in interest-bearing deposits in other institutions, net 669,200 94,243 Investment securities available for sale: Proceeds from repayments and maturities 4,956,718 3,530,734 Proceeds from sales - 2,092,981 Purchases (15,310,163) (10,913,812) Investment securities held to maturity: Proceeds from repayments and maturities 2,919,694 6,891,514 Increase in loans, net (16,221,337) (14,235,110) Purchase of Federal Home Loan Bank Stock (175,000) (124,800) Purchase of premises and equipment (340,894) (791,298) --------------- ---------------- Net cash used for investing activities (23,501,782) (13,455,548) --------------- ---------------- FINANCING ACTIVITIES Net increase in deposits 18,700,130 13,871,998 Increase in short-term borrowings, net 1,774,837 170,301 Repayment of other borrowings (536,210) (512,146) Proceeds from other borrowings 5,560,000 - Exercise of stock options 18,960 - Purchase of treasury stock (140,100) - Sale of treasury stock 18,020 - Cash dividends (547,769) (463,240) --------------- ---------------- Net cash provided by financing activities 24,847,868 13,066,913 --------------- ---------------- Increase in cash and cash equivalents 3,553,254 1,509,256 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,893,435 4,839,875 --------------- ---------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,446,689 $ 6,349,131 =============== ================ SUPPLEMENTAL INFORMATION Cash paid during the year for: Interest on deposits and borrowings $ 4,717,147 $ 4,963,457 Income taxes 434,000 660,000
See accompanying notes to unaudited consolidated financial statements. MIDDLEFIELD BANC CORP. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements of Middlefield Banc Corp. ("Middlefield") includes its wholly-owned subsidiary, The Middlefield Banking Company (the "Bank"). All significant intercompany items have been eliminated. The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. In Management's opinion, the financial statements include all adjustments, consisting of normal recurring adjustments, that Middlefield considers necessary to fairly state Middlefield's financial position and the results of operations and cash flows. The balance sheet at December 31, 2001, has been derived from the audited financial statements at that date but does not include all of the necessary informational disclosures and footnotes as required by accounting principles generally accepted in the United States of America. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with Middlefield's Form 10-K (File No. 33-23094). The results of Middlefield's operations for any interim period are not necessarily indicative of the results of Middlefield's operations for any other interim period or for a full fiscal year. NOTE 2 - EARNINGS PER SHARE Middlefield provides dual presentation of Basic and Diluted earnings per share. Basic earnings per share utilizes net income as reported as the numerator and the actual average shares outstanding as the denominator. Diluted earnings per share includes any dilutive effects of options, warrants, and convertible securities. There are no convertible securities that would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income will be used as the numerator. The following tables set forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.
For the Nine For the Three Months Ended Months Ended Sept 30, Sept 30, 2002 2001 2002 2001 ------------- ------------ ------------ --------------- Weighted average common shares outstanding 1,204,407 1,206,110 1,204,917 1,206,110 Average treasury stock shares (46,737) (45,722) (48,736) (45,722) ------------- ------------ ------------ --------------- Weighted average common shares and common stock equivalents used to calculate basic earnings per sha re 1,157,670 1,160,388 1,156,181 1,160,388 ============= ============ ============ =============== Additional common stock equivalents (stock options) used to calculate diluted earnings per share 1,580 1,450 3,096 546 ------------- ------------ ------------ --------------- Weighted average common shares and common stock equivalents used to calculate diluted earnings per share 1,159,250 1,161,838 1,159,277 1,160,934 ============= ============ ============ ===============
Options to purchase 9,975 shares of common stock at prices from $31.00 to $31.75 per share were outstanding during all periods of 2002 and 2001 but were not included in the computation of diluted EPS because to do so would have been anti-dilutive. NOTE 3 - COMPREHENSIVE INCOME The components of comprehensive income consist exclusively of unrealized gains and losses on available for sale securities. For the three months ended September 30, 2002, this activity is shown under the heading Comprehensive Income as presented in the Consolidated Statement of Changes in Stockholders' Equity (Unaudited). For the nine months ended September 30, 2001, comprehensive income totaled $1,859,642. For the three months ended September 30, 2002 and 2001, comprehensive income totaled $812,641 and $727,403, respectively. NOTE 4- STOCK DIVIDEND The Board of Directors approved a five percent stock dividend to stockholders of record as of June 1, 2002 payable June 14, 2002. As a result of the dividend, 54,997 additional shares of the Middlefield's common stock were issued, common stock was increased by $1,429,662 and retained earnings decreased by $1,434,607. Fractional shares paid were paid in cash. All average shares outstanding and all per share amounts included in the financial statements are based on the increased number of shares after giving retroactive effect to the stock dividend. NOTE 5- RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 141, Business Combinations, effective for all business combinations initiated after September 30, 2001, as well as all business combinations accounted for by the purchase method that are completed after September 30, 2001. The new statement requires that the purchase method of accounting be used for all business combinations and prohibits the use of the pooling-of-interests method. FAS No. 141 also specifies criteria which must be met for intangible assets acquired in a purchase method business combination to be recognized and reported apart from goodwill. The adoption of FAS No. 141 did not have a material effect on Middlefield's financial position or results of operations. On January 1, 2002, Middlefield adopted FAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. This statement changes the accounting for goodwill from an amortization method to an impairment-only approach. Thus, amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. However, this new statement did not amend FAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, which requires recognition and amortization of unidentified intangible assets relating to the acquisition of financial institutions or branches thereof. The FASB has undertaken a limited scope project to reconsider the provisions of FAS No. 72 in 2002 and has issued an exposure draft of a proposed statement, Acquisitions of Certain Financial Institutions, that would remove acquisitions of financial institutions from the scope of FAS No. 72. The adoption of this proposed statement would require all goodwill originating from acquisitions that meet the definition of a business combination as defined in Emerging Issues Task Force Issue ("EITF") No. 98-3 to be discontinued. The adoption of FAS No. 142 did not have a material effect on Middlefield's financial position or results of operations. In August 2001, the FASB issued FAS No. 143, Accounting for Asset Retirement Obligations, which requires that the fair value of a liability be recognized when incurred for the retirement of a long-lived asset and the value of the asset be increased by that amount. The statement also requires that the liability be maintained at its present value in subsequent periods and outlines certain disclosures for such obligations. The new statement takes effect for fiscal years beginning after September 15, 2002. The adoption of this statement, which is effective January 1, 2003, is not expected to have a material effect on Middlefield's financial statements. On January 1, 2002, Middlefield adopted FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. FAS 144 supercedes FAS 121 and applies to all long-lived assets (including discontinued operations) and consequently amends APB Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business. FAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less costs to sell. The adoption of FAS No. 144 did not have a material effect on Middlefield's financial statements. In April 2002, the FASB issued FAS No. 145, Recission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. FAS No. 145 rescinds FAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Opinion 30 will now be used to classify those gains and losses. This statement also amends FASB FAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This statement also makes technical corrections to existing pronouncements, which are not substantive but in some cases may change accounting practice. FAS No. 145 is effective for transactions occurring after May 15, 2002. The adoption of FAS No. 145 did not have a material effect on Middlefield's financial position or results of operations. In July 2002, the FASB issued FAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement replaces EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring). The new statement will be effective for exit or disposal activities initiated after December 31, 2002, the adoption of which is not expected to have a material effect on Middlefield's financial statements. On October 1, 2002, the FASB issued FAS No. 147, Acquisitions of Certain Financial Institutions, effective for all business combinations initiated after October 1, 2002. This Statement addresses the financial accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises. This Statement removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of FAS No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method. The acquisition of all or part of a financial institution that meets the definition of a business combination shall be accounted for by the purchase method in accordance with FAS No. 141, Business Combinations, and FAS No. 142, Goodwill and Other Intangible Assets. This Statement also provides guidance on the accounting for the impairment or disposal of acquired long-term customer-relationship intangible assets (such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets), including those acquired in transactions between two or more mutual enterprises. The adoption of FAS No. 147 did not have a material effect on Middlefield's financial position or results of operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of 2002 (the Act), following an investigative order proposed by the SEC on chief financial officers and chief executive officers of 947 large public companies on June 27, 2002. Additional regulations are expected to be promulgated by the SEC. As a result of the accounting restatements by large public companies, the passage of the Act and regulations expected to be implemented by the SEC, publicly-registered companies, such as Middlefield, will be subject to additional and more cumbersome reporting regulations and disclosure. These new regulations, which are intended to curtail corporate fraud, will require certain officers to personally certify certain SEC filings and financial statements and will require additional measures to be taken by our outside auditors, officers and directors. The loss of investor confidence in the stock market and the new laws and regulations will increase non-interest expenses of Middlefield and could adversely affect the prices of publicly-traded stocks, such as Middlefield. The Private Securities Litigation Act of 1995 contains safe harbor provisions regarding forward-looking statements. Forward-looking statements can be identified by terminology such as "believes," "expects," "anticipates," "estimates," "intends," "should," "will," "plans," "potential" and similar words. Forward-looking statements are also statements that are not statements of historical fact. Forward-looking statements necessarily involve risks and uncertainties. They are merely predictive or statements of probabilities, involving known and unknown risks, uncertainties and other factors. If one or more of these risks of uncertainties occurs or if the underlying assumptions prove incorrect, actual results in 2002 and beyond could differ materially from those expressed in or implied by the forward-looking statements. Forward-looking statements are based upon a variety of estimates and assumptions. The estimates and assumptions involve judgments about a number of things, including future economic, competitive, and financial market conditions and future business decisions. These matters are inherently subject to significant business, economic and competitive uncertainties, all of which are difficult to predict and many of which are beyond Middlefield's control. Although Middlefield believes its estimates and assumptions are reasonable, actual results could vary materially from those shown. Inclusion of forward-looking information in this Form 10-Q does not constitute a representation by Middlefield or any other person that the indicated results will be achieved. Investors are cautioned not to place undue reliance on forward-looking information. Comparison of Financial Condition at September 30, 2002 and December 31, 2001. Total assets increased $27.0 million to $224.8 million at September 30, 2002 from $197.9 million at December 31, 2001. This increase primarily resulted from an increase in net loans receivable of $16.3 million, investment securities of $7.8 million, and cash and cash equivalents of $3.6 million that was primarily funded by net increases in deposits and borrowings of $18.7 million and $6.8 million, respectively. Cash and cash equivalents increased to $9.4 million at September 30, 2002 as compared to $5.9 million at December 31, 2001. This increase resulted from temporary fluctuations with correspondent banks due to the timing of customer activity. Investment securities available for sale increased to $32.0 million at September 30, 2002 from $21.2 million at December 31, 2001. Meanwhile, investment securities held to maturity decreased to $7.3 million at September 30, 2002 from $10.2 million at December 31, 2001. The net increase in 2002 is primarily due to investment purchases of $15.3 million primarily in mortgage-backed securities, which was partially offset by investment calls and maturities of $7.9 million. Purchases of mortgage-backed securities, which have all been classified as available for sale, typically have maturities ranging from 15 to 30 years with yields between 4.5% and 6.0%. Approximately half of the entire investment securities portfolio is now comprised of mortgage-backed securities as compared to 36% at December 31, 2001. Management was able to fund this growth with an influx of deposits coupled with the reinvestment of called and matured securities during the year. Total loans increased to $169.2 million at September 30, 2002 from $152.8 million at December 31, 2001. The increase in net loans receivable resulted from the economic health of Middlefield's market area and the strategic, service-oriented marketing approach taken by management to meet the lending needs of the area. The majority of the increased lending activity is predominately residential mortgage and commercial real estate loans. Such loans grew $10.2 million and $6.3 million, respectively, at September 30, 2002. In general, real estate lending accounts for approximately 80% of Middlefield's loan portfolio. The increased lending is attributed to continued customer referrals and Middlefield's overall relationship with its customers. This growth was primarily funded with deposit growth coupled with a series of borrowings with the Federal Home Loan Bank ("FHLB"). The allowance for loan losses represents the amount that management estimates is adequate to provide for probable losses inherent in the loan portfolio, as of the balance sheet date. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. At September 30, 2002, Middlefield's allowance for loan losses increased approximately $165,000 to $2.2 million. The allowance for loan losses is established through a provision for loan losses, which is charged to operations. The provision is based on management's periodic evaluation of the adequacy of the allowance for loan losses, taking into account the overall risk characteristics of the various portfolio segments, past experience with losses, the impact of economic conditions on borrowers, and other relevant factors. The estimates used to determine the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to significant change in the near term. The total allowance for loan losses is a combination of a specific allowance for identified problem loans, a formula allowance, and an unallocated allowance. As the primary source of funds, aggregate deposits of $186.1 million increased $18.7 million or 11.2% compared to December 31, 2001. Growth was primarily concentrated in time deposits, savings and money market accounts and resulted from the continual marketing efforts by management, as well as customer preferences to readily accessible deposit products. Such accounts grew by $9.2 million, $5.9 million and $2.0 million, respectively, during the period. Other borrowings increased to $14.3 million at September 30, 2002 from $9.3 million at December 31, 2001. This increase was the result of an additional $5.6 million in Federal Home Loan Bank borrowings to be repaid over a ten-year period. As noted previously, the proceeds from these borrowings were used to supplement the funding of loan demand. Total stockholders' equity increased to $21.2 million at September 30, 2002 due to net income of $1,760,000 that was offset partially by dividend payments of $543,000 and an increase in accumulated other comprehensive income of $332,000. Accumulated other comprehensive income increased as a result of changes in the net unrealized gain on investment securities available for sale due to fluctuations in interest rates. Because of interest rate volatility, accumulated other comprehensive income could materially fluctuate for each interim period and year-end period depending on economic and interest rate conditions. Middlefield declared a 5.0% stock dividend during the period that resulted in a transfer between retained earnings and common stock of approximately $1.4 million. In September 2002, Middlefield's dividend reinvestment plan was initiated to promote long-term ownership by investors with the proceeds from such purchases being used for general corporate purposes. In addition, future dividend policies will be determined by the Board of Directors in light of the earnings and financial condition of Middlefield, including applicable governmental regulations and policies. Comparison of Results of Operations for the Nine and Three Months Ended September 30, 2002 and 2001. Middlefield recorded net income of $1,760,000 for the nine month period ended September 30, 2002 as compared to net income of $1,689,000 for the same period ended September 30, 2001. This increase in net income was due to the significant growth in net interest income of $713,000 while offset by increases in noninterest expense and the provision for loan losses of $396,000 and $100,000 respectively. Basic and diluted earnings per share increased to $1.52 per share for the nine months ended September 30, 2002 from $1.46 per share for the same period ended 2001. For the three months ended September 30, 2002, Middlefield recorded net income of $639,000, or $.55 per share as compared to $660,000 or $.57 per share for the same period ended September 30, 2001. Net interest income for the nine months ended September 30, 2002 increased to $5,872,000, compared to $5,159,000 for the same period ended 2001. Interest income for the first nine months of 2002 was $10,511,000 as compared to $10,270,000 for the same period ended 2001. This increase of $241,000 was influenced primarily by an increase in interest earned on loans receivable of $386,000, while offset by decreases in interest earned on investment securities and federal funds sold of $74,000 and $66,000, respectively. Although Middlefield intentionally caused a decrease to its interest rate yields, interest income was driven by increases in average balances of interest-earning assets. The average balance of loans receivable increased $20.1 million to $161.1 million during 2002, as compared to $141.0 million for the 2001 period. The tax-equivalent yield on interest earning assets decreased to 7.09% for the nine months ended 2002 from 7.91% for same period ended 2001, and primarily resulted from a 118 basis point and 72 basis point decrease in investment securities and loans receivable, respectively. During 2002, $7.9 million in called, matured, and repayed investment securities were reinvested at substantially lower rates. The lower interest rate environment resulted during 2001, when interest rates were driven downward by an aggressive rate reduction policy by the Federal Reserve Board. Interest expense decreased $472,000 for the nine months ended September 30, 2002 to $4,639,000 from $5,111,000 for the same period ended 2001. Interest expense incurred on deposits decreased $540,000 for the nine months ended September 30, 2002 as compared to the same period ended 2001 and was partially offset by an increase in interest expense on borrowings of $67,000. This was primarily attributable to a declining interest rate environment which resulted in the cost of funds decreasing to 3.78% for the nine months ended September 30, 2002 from 4.82% for the same period 2001. Offsetting the declining rates was an increase in the average balance of interest-bearing liabilities of $22.0 million to $163.5 million for the nine months ended September 30, 2002. In particular, the average balance of savings and certificates of deposits increased $10.9 million and $6.4 million, respectively. As noted previously, such increases were the result of the competitively priced products being marketed throughout Middlefield's market area. Net interest income for the three months ended September 30, 2002 increased to $1,995,000, compared to $1,777,000 for the same period ended 2001. Interest income for the three months ended September 30, 2002 increased $77,000 primarily due to interest earned on loans. The average balance of loans receivable increased $20.8 million to $167.5 million during 2002, as compared to $146.7 million for the 2001 period. The tax-equivalent yield on interest earning assets decreased to 6.90% for the three months ended September 30, 2002 from 7.88% for same period ended 2001, and primarily resulted from a 152 basis point and 84 basis point decrease in investment securities and loans receivable, respectively. As noted previously, the Federal Reserve Board adopted a policy of aggressive interest rate reduction in 2001 that resulted in this adverse impact on the yield on earning assets. Meanwhile, an overall decrease in interest expense was primarily the effect of a declining cost of funds for the three months ended September 30, 2002 to 3.72% from 4.77% for the same period ended 2001. This was offset somewhat by an increase in the average balance of interest bearing liabilities of $25.8 million. As noted above, the competitive pricing strategy of Middlefield has contributed to these increases in deposit balances. The result of this activity was a decline of $185,000 in interest incurred on deposits which was partially offset by an increase in interest incurred on borrowings of $45,000. Total noninterest income, exclusive of investment security gains of $98,000, for the nine and three months ended September 30, 2002 remained relatively unchanged from 2001. Noninterest income items are primarily comprised of service charges and fees on deposit account activity, along with fee income derived from other financial related services. Total noninterest expenses increased $396,000 and $118,000 for the nine and three months ended September 30, 2002, respectively, as compared to the same period ended 2001. Compensation and employee benefits increased $184,000 and $82,000, respectively, primarily as a result of normal merit raises. Occupancy and equipment expenses increased $79,000 and $29,000, respectively, as a result of added capital expenditures in prior years, in particular the Chardon branch which became operational in 2001. As a result of increased transaction activity from operating a larger organization, data processing expenses increased $45,000 and $15,000, respectively, during 2002 as compared to 2001. In addition, all other expenses increased $104,000 and $10,000, respectively, as a result of costs incurred for professional fees associated with outside assistance in complying with the increased levels of regulatory compliance of a publicly reported company, outsourcing certain services previously performed internally, and as previously noted an increase in expenses incurred as a result of operating a larger organization. Middlefield has also purchased land for expansion of a new branch network in early 2003, and anticipates incurring additional capital and operational expenditures in the next twelve months. LIQUIDITY Liquidity management for Middlefield is measured and monitored on both a short-and long-term basis, thereby allowing management to better understand and react to emerging balance sheet trends. After assessing actual and projected cash flow needs, management seeks to obtain funding at the most economical cost to Middlefield. Both short-and long-term liquidity needs are addressed by maturities and sales of investment securities, loan payments and maturities, and liquidating money market investments such as federal funds sold. The use of these resources, in conjunction with access to credit, provide the core ingredients to meet depositor, borrower, and creditor needs. Middlefield's liquid assets consist of cash and cash equivalents, which include investments in very short-term investments (i.e., federal funds sold), and investment securities classified as available for sale. The level of these assets is dependent on Middlefield's operating, investing, and financing activities during any given period. At September 30, 2002, cash and cash equivalents totaled $9.4 million or 4.2% of total assets while investment securities classified as available for sale totaled $32.0 million or 14.2% of total assets. Management believes that the liquidity needs of Middlefield are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, FHLB advances, and the portion of the investment and loan portfolios that mature within one year. These sources of funds will enable Middlefield to meet cash obligations and off-balance sheet commitments as they come due. Operating activities provided net cash of $2.3 million and $1.9 million for the nine month periods ended September 30, 2002 and 2001, respectively, and were generated principally from net income of approximately $1.8 million and $1.7 million, respectively, for both periods. Investing activities used $23.6 million and $13.5 million in funds during the nine months of 2002 and 2001, respectively. These cash usages primarily consisted of loan originations of $16.3 million and $14.2 million, respectively, as well as investment purchases of $15.3 million and $10.9 million, respectively. Partially offsetting the usage of investment activities is $7.9 million and $12.5 million, respectively, of proceeds from investment security gains, maturities, and repayments. Financing activities consist of the solicitation and repayment of customer deposits, and borrowings and repayment. During the nine months ended September 30, 2002, net cash provided by financing activities totaled $24.8 million, principally derived from an increase in deposit accounts in general, and savings deposits specifically. Also contributing to this influx of cash was proceeds from total borrowings of $7.3 million. During the same period ended 2001, net cash provided by financing activities was $13.1 million, and consisted almost entirely of an increase in deposit accounts. Liquidity may be adversely affected by unexpected deposit outflows, excessive interest rates paid by competitors, and similar matters. Management monitors projected liquidity needs and determines the level desirable, based in part on the bank's commitment to make loans, as well as management's assessment of Middlefield's ability to generate funds. Middlefield anticipates it will have sufficient liquidity available to meet estimated short-term and long-term funding needs. CAPITAL RESOURCES Middlefield is subject to federal regulations that impose certain minimum capital requirements. Management monitors both Middlefield's and the Bank's Total risk-based, Tier I risk-based and Tier I leverage capital ratios in order to assess compliance with regulatory guidelines. At September 30, 2002, both Middlefield and the Bank exceeded the minimum risk-based and leverage capital ratio requirements. Middlefield's Total risk-based, Tier I risk-based and Tier I leverage ratios were 16.99%, 15.73%, 9.48%, and the bank's were 16.14%, 14.89%, 9.23%, respectively, at September 30, 2002. RISK ELEMENT The table below presents information concerning nonperforming assets including nonaccrual loans, renegotiated loans, loans 90 days or more past due, other real estate loans, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectibility of interest and principal. At the time the accrual of interest is discontinued, future income is recognized only when cash is received. Renegotiated loans are those loans which terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deterioration of the borrower.
September 30, December 31, 2002 2001 ---- ---- (Dollars in thousands) Loans on nonaccrual basis $334 $ -- Loans past due 90 days or more and still accruing 156 254 ---- ----- Total nonperforming loans $490 $ 254 ---- ----- Nonperforming loans as a percent of total loans 0.29% 0.17% ==== ===== Nonperforming assets as a percent of total assets 0.22% 0.13% ==== =====
At September 30, 2002 and December 31, 2001, no real estate or other assets were held as foreclosed or repossessed property. Management monitors impaired loans on a continual basis. As of September 30, 2002, impaired loans had no material effect on the Middlefield's financial position or results of operations. During the nine month period ended September 30, 2002, loans increased $16.4 million while nonperforming loans increased to a total of $236,000. The allowance for loan losses increased $165,000 during this same period while the resulting percentage of allowance for loan losses to loans outstanding declined to 1.32% as compared to 1.35% at December 31, 2001. Nonperforming loans are primarily made up of residential and commercial mortgages. The collateral requirements on such loans reduce the risk of potential losses to an acceptable level in management's opinion. The allowance for loan losses represents the amount that management estimates is adequate to provide for probable losses inherent in the loan portfolio, as of the balance sheet date. The relationship between the allowance for loan losses and outstanding loans is a function of the credit quality and known risk attributed to the loan portfolio. The on-going loan review program and credit approval process is used to determine the adequacy of the allowance for loan losses. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Like other financial institutions, the bank is subject to interest rate risk. The bank's interest-earning assets could mature or reprice more rapidly than or on a different basis from its interest-bearing liabilities (primarily borrowings and deposits with short- and medium-term maturities) in a period of declining interest rates. Although having assets that mature or reprice more frequently on average than liabilities will be beneficial in times of rising interest rates, that asset/liability structure will result in lower net interest income in periods of declining interest rates. Interest rate sensitivity, or interest rate risk, relates to the effect of changing interest rates on net interest income. Interest-earning assets with interest rates tied to the prime rate for example, or that mature in relatively short periods of time, are considered interest-rate sensitive. Interest-bearing liabilities with interest rates that can be repriced in a discretionary manner, or that mature in relatively short periods of time, are also considered interest-rate sensitive. The differences between interest-sensitive assets and interest-sensitive liabilities over various time horizons are commonly referred to as sensitivity gaps. As interest rates change, a sensitivity gap will have either a favorable effect or an adverse effect on net interest income. A negative gap -- with liabilities repricing more rapidly than assets -- generally should have a favorable effect when interest rates are falling, and an adverse effect when rates are rising. A positive gap -- with assets repricing more rapidly than liabilities -- generally should have the opposite effect: an adverse effect when rates are falling and a favorable effect when rates are rising. Middlefield and the bank have no financial instruments entered into for trading purposes. Interest rates change daily on federal funds purchased and sold. Federal funds are therefore the most sensitive to the market and have the most stable fair values. Loans and deposits tied to indices such as the prime rate or federal discount rate are also market sensitive, with stable fair values. The least sensitive instruments include long-term, fixed-rate loans and securities and fixed-rate savings deposits, which have the least stable fair value. Management of maturity distributions of assets and liabilities between these extremes is as important as the balances maintained. Management of maturity distributions involves matching interest rate maturities as well as principal maturities, and it influences net interest income significantly. In periods of rapidly changing interest rates, a negative or positive gap can cause major fluctuations in net interest income and earnings. Managing asset and liability sensitivities to enhance growth regardless of changes in market conditions is one of the objectives of the bank's asset/liability management strategy. Evaluating the bank's exposure to changes in interest rates is the responsibility of the Asset/Liability Committee, a committee of bank directors and officers. The Asset/Liability Committee assesses both the adequacy of the management process used to control interest rate risk and the quantitative level of exposure, ensuring that appropriate policies, procedures, management information systems and internal controls are in place to maintain interest rate risk at appropriate levels. Evaluating the quantitative level of interest rate risk exposure requires assessment of existing and potential effects of changes in interest rates on the bank's financial condition, including capital adequacy, earnings, liquidity and asset quality. The bank uses an asset/liability model to support its balance sheet strategies. Gap analysis, one of the methods used by management to analyze interest rate risk, does not necessarily show the precise impact of specific interest rate movements on Middlefield's net interest income because the re-pricing of certain assets and liabilities is discretionary and is subject to competitive and other pressures. In addition, assets and liabilities within the same period may, in fact, be repaid at different times and at different rate levels. Middlefield has not experienced the kind of earnings volatility that might be indicated from gap analysis. Middlefield's use of a simulation model to better measure the impact of interest rate changes on net interest income is incorporated into the risk management process to effectively identify, measure, and monitor Middlefield's risk exposure. Interest rate simulations using a variety of assumptions are employed by Middlefield to evaluate its interest rate risk exposure. A shock analysis at September 30, 2002 indicated that a 200 basis point movement in interest rates in either direction would have had a minor impact on Middlefield's anticipated net interest income and the market value of assets and liabilities over the next 12 months, well within Middlefield's ability to manage effectively. Item 3. Controls and Procedures (a) Evaluation of disclosure controls and procedures. Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-QSB, the Registrant's principal executive officer and principal financial officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. (b) Changes in internal controls. There were no significant changes in the Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in rights of the Company's security holders None Item 3. Defaults by the Company on its senior securities None Item 4. Submission of matters to a vote of security holders None Item 5. Other information None Item 6. Exhibits and Reports on Form 8-K (a) The following exhibits are included in this Report or incorporated herein by reference: 3.1 Second Amended and Restated Articles of Incorporation of Middlefield Banc Corp. * 3.2 Regulations of Middlefield Banc Corp. * 4 Specimen Stock Certificate * 10.1 1999 Stock Option Plan of Middlefield Banc Corp. * 10.2 Severance Agreement of President and Chief Executive Officer * 10.3 Severance Agreement of Executive Vice President * 10.4 Federal Home Loan Bank of Cincinnati Agreement for Advances and Security Agreement dated September 14, 2000 * 10.5 Collateral Assignment Split Dollar Agreement between the President and Chief Executive Officer and The Middlefield Banking Company * 21 Subsidiaries of Middlefield Banc Corp. * 99.1 Form of Indemnification Agreement with directors of Middlefield Banc Corp. and executive officers of Middlefield Banc Corp. and The Middlefield Banking Compay * 99.2 Independent Accountants Report 99.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act 0f 2002. * Incorporated by reference to the identically numbered exhibit to the December 31, 2001 Form 10-K (File No. 033-23094) filed with the SEC on March 28, 2002. (b) ) Reports on Form 8-K. On July 10, 2002, a Form 8-K (Items 5 and 7) was filed with the Securities and Exchange Commission to disclose the Company's press release announcing that the authorization to repurchase up to 4.99% of Middlefield Banc Corp.'s outstanding common stock. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned and hereunto duly authorized. MIDDLEFIELD BANC CORP. Date: November 12, 2002 By: /s/ Thomas G. Caldwell ---------------------------------------- Thomas G. Caldwell President and Chief Executive Officer Date: November 12, 2002 By: /s/ Donald L. Stacy ---------------------------------------- Donald L. Stacy Principal Financial and Accounting Officer CERTIFICATION Pursuant to Section 302 of the Securities Exchange Act of 1934 I, Thomas G. Caldwell, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Middlefield Banc Corp. ("the Registrant"). 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("the Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons fulfilling the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; and 6. The Registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: 11/12/02 /s/ Thomas G. Caldwell ---------------------- Thomas G. Caldwell. President CERTIFICATION Pursuant to Section 302 of the Securities Exchange Act of 1934 I, Donald L. Stacy, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Middlefield Banc Corp. ("the Registrant"). 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("the Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons fulfilling the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; and 6. The Registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: 11/12/02 ` s/s Donald L. Stacy -------------------- Donald L. Stacy Principal Financial and Accounting Officer EX-99.2 3 dex992.txt INDEPENDENT ACCOUNTANT'S REPORT Exhibit 99.2 INDEPENDENT ACCOUNTANT'S REPORT Board of Directors Middlefield Banc Corp. We have reviewed the accompanying consolidated balance sheet of Middlefield Banc Corp. and subsidiary as of September 30, 2002, and the related consolidated statements of income and cash flows for the three-month and nine-month periods ended September 30, 2002 and 2001, and the consolidated statement of changes in stockholders' equity for the nine-month period ended September 30, 2002. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2001, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 22, 2002, we expressed an unqualified opinion on those consolidated financial statements. /s/ S.R. Snodgrass, A.C. Wexford, PA November 12, 2002 EX-99.3 4 dex993.txt CERTIFICATION Exhibit 99.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Middlefield Banc Corp. (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Thomas G. Caldwell, President ,and Donald L. Stacy, Chief Financial Officer, certify, pursuant to 18 U.S.C. ` 1350, as adopted pursuant to ` 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Thomas G. Caldwell /s/ Donald L. Stacy - ----------------------- ------------------- Thomas G. Caldwell Donald L. Stacy President Principal Financial and Accounting Officer November 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----